Gingrich's Social Security plan is insane.

[Stardust]

The meat:

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I have absolutely no problem with privatizing Social Security, but I absolutely do not want to socialize its losses. Newt wants to have his cake and eat it, too. It cannot be done.

[Wonkish1]

The meat:

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I have absolutely no problem with privatizing Social Security, but I absolutely do not want to socialize its losses. Newt wants to have his cake and eat it, too. It cannot be done.

You socialize its losses today! I don't think you understand the rates of returns in social security today. They guarantee is as cheap as FDIC insurance maybe even cheaper.

[Stardust]

The meat:

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I have absolutely no problem with privatizing Social Security, but I absolutely do not want to socialize its losses. Newt wants to have his cake and eat it, too. It cannot be done.

You socialize its losses today!

And that's exactly what I want to stop, not encourage, as Newt's plan does. 

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I don't care. Unlike Gingrich, I have higher principles than elective office. Newt's plan would make Social Security more socialistic, not less.

[Wonkish1]

The meat:

You must be logged in to read this quote.

I have absolutely no problem with privatizing Social Security, but I absolutely do not want to socialize its losses. Newt wants to have his cake and eat it, too. It cannot be done.

You socialize its losses today!

And that's exactly what I want to stop, not encourage, as Newt's plan does. 

You must be logged in to read this quote.

I don't care. Unlike Gingrich, I have higher principles than elective office. Newt's plan would make Social Security more socialistic, not less.

Wow, that is unbelievable. Government guarantees is not more socialistic than government owned and ran. How you could possibly make that argument I have no idea?

Providing a low government guarantee to these accounts is substantially lowering the socialization of losses. If you don't get this then you don't understand the terms of such a plan and the current situation.

[Torie]

Of course it is insane, and Newt totally mischaracterized what happened in Chile. Talk about an unfunded government guarantee!  Newt will be owned on this issue, if he ever is truly taken seriously, and he is just quite yet.

[memphis]

I'd like to know who is going to pay for current retirees if I'm putting my money into my own private account.

[Wonkish1]

Of course it is insane, and Newt totally mischaracterized what happened in Chile. Talk about an unfunded government guarantee!  Newt will be owned on this issue, if he ever is truly taken seriously, and he is just quite yet.

Your absolutely wrong on this front. Explain it to me in the context of Galvaston then. Then explain to me how Defined Benefit plans that are falling apart and being transferred to the PBGC have been a better alternative to Defined Contribution plans.

Lets assume the private accounts can only be invested conservatively. So lets say 4-5% assumption with little volatility. Social security currently earns between .5% and 2.5% annually(depending on dob, married vs. single, and a little bit based on income) and if your under the age of 40 it will be nearly impossible to get more than 1.5% going forward even among married couples. For most people under the age of 40 the rate of return will be less than 1% when they hit 65(and that doesn't include any reductions due to budget shortfalls).

Now if you are going to tell me that a guarantee to step up any shortfall of accounts to 1% a year that should average at least 4% and have many years of growth is a massive unfunded guarantee is a joke. The base of that guarantee is just too low. And that should just point out to you how bad our current Social Security system is at providing for retirement. It takes into much and pays out to little because the money isn't invested in anything its a pay-go system of which the only other thing in the US that is pay-go vehicle is a ponzi scheme.

[Wonkish1]

I'd like to know who is going to pay for current retirees if I'm putting my money into my own private account.

Well by pointing out that our system is so inefficient that you can get away with redirecting a portion of payroll taxes for a net positive result. So you can lower future liability while dealing with current retirees separately.

In regards to current to current retirees that may include means testing the highest wealth people currently, cutting elsewhere in the budget, or if it was a part of a deal I have no problem agreeing to a small tax increase elsewhere to fund the shortfall.

[King]

Guys, it's a system designed to be wrought with fraud so that future conservatives can just eliminate SS all together without debate.

[Wonkish1]

Guys, it's a system designed to be wrought with fraud so that future conservatives can just eliminate SS all together without debate.

You have no idea what your talking about! The current system is a fraud because it is guaranteed to stiff a bunch of people in the future.

So you think that 401ks, TSPs, 403bs, etc. are defrauding the public today? Because essentially every example of the system would be a share of your payroll to essentially a TSP plan. And ask Clarence if he thinks his TSP was a good plan or not. He'll tell you!

[Badger]

Wonkish, it's truly unbelievable that you or anyone would seriously argue a privitization plan can work based on "little volitility" in the market. Have you been in a cocoon for the last 3 years?

[Wonkish1]

Wonkish, it's truly unbelievable that you or anyone would seriously argue a privitization plan can work based on "little volitility" in the market. Have you been in a cocoon for the last 3 years?

Frustrated sigh! Are you trying to not read my post very well?

Is there only stocks in the market?

Or are there corporate bonds, muni's, CD's, Money market accounts, etc.?

What I was saying is okay you get intimidated by money being 100% equity options? Fine make all of the options at least fairly conservative. It still is a better deal social security. Hell you could say that the only choice was money market accounts and based on historical averages you would crush the average performance of Social Security today(its that bad). And when you're looking at investment grade bonds, CD's, and money market accounts then yes you are looking at less volatility then you see in 100% stock funds and indexes.

Didn't you notice I used a 4-5% assumption instead of an 8-9% assumption that is traditionally used for 100% equity investment? That's because I was assuming significantly more conservative choices.

Now do you get what I was saying?

[memphis]

I'd like to know who is going to pay for current retirees if I'm putting my money into my own private account.

Well by pointing out that our system is so inefficient that you can get away with redirecting a portion of payroll taxes for a net positive result. So you can lower future liability while dealing with current retirees separately.

In regards to current to current retirees that may include means testing the highest wealth people currently, cutting elsewhere in the budget, or if it was a part of a deal I have no problem agreeing to a small tax increase elsewhere to fund the shortfall.

You think a "small" tax increase would fund the shortfall? Check out how much SS costs.

[Wonkish1]

You think a "small" tax increase would fund the shortfall? Check out how much SS costs.

Well that would purely depend upon how much of the social security payroll taxes were diverted wouldn't it? I mean currently our government has a temporary payroll tax cut they're about to extend. It doesn't seem to be bothering many people that it is affecting revenues for social security.


But the point is that the biggest risks in Social Security is 15-40 year out liabilities. If you do nothing its bankrupt. You have to come up with a plan now to divert the trajectory of those future liabilities. So what we're doing here when we talk about this is to separate out a portion of payroll taxes and with a higher rate of return in the private markets it will grow beyond what pay go system can provide and that means the future liability can get wiped from the federal books.

Now you asked about how does that affect social security funding between now and the time when the number of people on pay go social security start to fall. Well I would be okay with making up a lot of that small diversion of payroll taxes with a tax increase somewhere else. Just as long as the future liability picture for both social security and the US government as a whole improved as a result of the deal.


Lastly to analogize this saying that you aren't willing to divert some of the payroll tax(and make that up elsewhere) to wipe out the long term liability because of less payroll money going towards current retirees is like saying that you aren't willing to actually pay the actual interest on a negative ARM mortgage when eventually the fact that its accruing against you is going to bankrupt you.

[Badger]

Wonkish, it's truly unbelievable that you or anyone would seriously argue a privitization plan can work based on "little volitility" in the market. Have you been in a cocoon for the last 3 years?

Frustrated sigh! Are you trying to not read my post very well?

Is there only stocks in the market?

Or are there corporate bonds, muni's, CD's, Money market accounts, etc.?

What I was saying is okay you get intimidated by money being 100% equity options? Fine make all of the options at least fairly conservative. It still is a better deal social security. Hell you could say that the only choice was money market accounts and based on historical averages you would crush the average performance of Social Security today(its that bad). And when you're looking at investment grade bonds, CD's, and money market accounts then yes you are looking at less volatility then you see in 100% stock funds and indexes.

Didn't you notice I used a 4-5% assumption instead of an 8-9% assumption that is traditionally used for 100% equity investment? That's because I was assuming significantly more conservative choices.

Now do you get what I was saying?

I read your post quite well. The other investment options you mention either carry their own lesser degrees of volitility and diminishing returns. Corporate bonds? Why that seems perfectly safe, and recent history has shown no proof no the contrary.

Gingrich's plan, like any Social Security privitization plan, is quite transparently a path to placing all Wall Street on the corporate welfare teat courtesy of retirees nest egg, and eventually get rid of it as a dirty, dirty public function.

[Wonkish1]

I read your post quite well. The other investment options you mention either carry their own lesser degrees of volitility and diminishing returns. Corporate bonds? Why that seems perfectly safe, and recent history has shown no proof no the contrary.

Gingrich's plan, like any Social Security privitization plan, is quite transparently a path to placing all Wall Street on the corporate welfare teat courtesy of retirees nest egg, and eventually get rid of it as a dirty, dirty public function.

That is just factually incorrect. I mean do you contribute a single dollar to your 401k or into a savings account? Would you call those bad things?

Yeah volatility goes down and average returns go down when you go safer, but if volatility scares you then I'm perfectly fine limiting the options that have high volatility. But even a money market account is going to outperform the unbelievably horrible rate of return of ~1% going forward that Social Security has. I mean you want a system that cheats people. There you have one that is actually guaranteed to screw over younger people today and for older people its going to generate just horrible returns on the money invested.

So I'm perfectly fine with people regulating away 100% equity funds out of plan to reduce the volatility. Because even the safest lower returning options would be better.


And investment grade corporate bond funds are remarkably safe. They are diversified enough that even a couple of defaults(which is extremely rare if its investment grade) don't pose much of a problem for the fund.

Maybe we should instead just prefer guaranteed losses taken by the treasury on the current trajectory?


Look are 401ks bad things for America? Are TSPs bad things for America? If you say no there is no way you can come out and say some of the things your saying about private account options.

[Badger]

The losses are coming in large part due to the baby boom retirement. That will eventually subside as they die off later this century. When talking about a societal-wide retirement plan, it's ok to think in the time frame of generations rather than mere decades. It may not be the worst thing to assume there will be a generation of solvancy issues--perhaps much further in the future than you state, depnding on which study one reviews--before the worker to retiree ratio restabilizes. Right now, the baby boom iis an anomoly; the graph equivilent of python that recently ate a pig.

At any rate, why on earth would one trust such restraint from politicians like Gingrich who--minimum required lip service to remain politically viable aside--has made it very clear at a personal and (psuedo) intellectual level to the core of his being he opposes government activity outside "traditional" (i.e. Victorian) roles,and believes the private sector is fundamentally best when left completely and utterly to its own devices. The man abhores even unremittingly successful social policy like Social Secuity on a visceral and unbending philisophical level. The fact he himself is vastly wealthy (not Rmoney wealthy, but..) and never will need a dime of social security, nor will anyone in his family or any friend in his life.

In short, there is ample and good reason for distrust. The issue here isn't benefiting retirees--never has been--but really just an unremitting war against any successful actions by government that interfere with ivory tower delusions of recreating a mythical version of The Gilded Age.

I'm not a Gingrich fan as you can suspect.

[Wonkish1]

The losses are coming in large part due to the baby boom retirement. That will eventually subside as they die off later this century. When talking about a societal-wide retirement plan, it's ok to think in the time frame of generations rather than mere decades. It may not be the worst thing to assume there will be a generation of solvancy issues--perhaps much further in the future than you state, depnding on which study one reviews--before the worker to retiree ratio restabilizes. Right now, the baby boom iis an anomoly; the graph equivilent of python that recently ate a pig.

At any rate, why on earth would one trust such restraint from politicians like Gingrich who--minimum required lip service to remain politically viable aside--has made it very clear at a personal and (psuedo) intellectual level to the core of his being he opposes government activity outside "traditional" (i.e. Victorian) roles,and believes the private sector is fundamentally best when left completely and utterly to its own devices. The man abhores even unremittingly successful social policy like Social Secuity on a visceral and unbending philisophical level. The fact he himself is vastly wealthy (not Rmoney wealthy, but..) and never will need a dime of social security, nor will anyone in his family or any friend in his life.

In short, there is ample and good reason for distrust. The issue here isn't benefiting retirees--never has been--but really just an unremitting war against any successful actions by government that interfere with ivory tower delusions of recreating a mythical version of The Gilded Age.

I'm not a Gingrich fan as you can suspect.

The system is just going to get progressively worse over time as people live longer and the amount of kids people have continue to remain low. Even as the baby boomer generation dies off and you see a small reduction in the degree that we are bankrupt(think about that for a second and realize that isn't something to crow about) it will soon afterward continue its march towards a bigger and bigger problem.

So its starting to look that you are at least willing to agree in concept that a Defined contribution model, with a guarantee to step up if there is some way hell froze over and the accounts were lower than the benefits under the current system, and a strong limitation on volatile markets. Now your criticism is instead directed to the notion that you don't trust someone like Newt to implement a plan like this without trying to screw the public over?

If you define a system that earns an extremely low return, provides extreme subsistence level retirement income, and is going bankrupt as a success than I wonder what you consider a problem! Interesting that he advocates means testing the program(that doesn't seem self serving to me with all of his millions).

This just looks like some self righteous drivel trying to make anyone that advocates a change that makes sense as someone that supports going back to the Gilded age.



Taking the plan on just its merits as I laid it out for you and given the problems as I laid them out for you would you at least admit that a very conservatively invested defined contribution plan(with low fees like the TSP plan) and a guaranteed step up if by some amazing event the money didn't average ~1% over all those years... is a plan worth looking at at least. I mean Clinton was about to agree to it in the late 90s. And his deal was that he would agree to that if the GOP agreed to remove the income cap on the payroll tax. I'd take that deal in a second wouldn't you?

[Wonkish1]

Where is all this open mindedness that people claimed to have when I created a thread on the subject a while back.

I just made an argument in good faith. I covered all of the details you could ask for. I covered both of the liberal concerns of volatility and fees. I explained how it would be an improvement on the current system. It is something that would benefit all of the young folks on here because it would mean that they could count on the program being there for them when they get older and that it would generate higher returns(higher income at retirement) for them even if it was restricted to safer and less volatile assets. I covered the guarantee and how it is essentially a non liability for the federal government(and even it did happen its substantially lower than the current liabilities in the system) I gave examples of what conservatives would accept to make sure that the revenue is there for current retirees. It is safe to say that I am an authority on the subject matter.

Can I at least get an admission that there is at least a good chance that it is a better option than the current mess we're heading in? Or is that to much to ask from a group of people that would prefer to have sole allegiance to proposals produced by their own party?

[Torie]

Of course it is insane, and Newt totally mischaracterized what happened in Chile. Talk about an unfunded government guarantee!  Newt will be owned on this issue, if he ever is truly taken seriously, and he is just quite yet.

Your absolutely wrong on this front. Explain it to me in the context of Galvaston then. Then explain to me how Defined Benefit plans that are falling apart and being transferred to the PBGC have been a better alternative to Defined Contribution plans.

Lets assume the private accounts can only be invested conservatively. So lets say 4-5% assumption with little volatility. Social security currently earns between .5% and 2.5% annually(depending on dob, married vs. single, and a little bit based on income) and if your under the age of 40 it will be nearly impossible to get more than 1.5% going forward even among married couples. For most people under the age of 40 the rate of return will be less than 1% when they hit 65(and that doesn't include any reductions due to budget shortfalls).

Now if you are going to tell me that a guarantee to step up any shortfall of accounts to 1% a year that should average at least 4% and have many years of growth is a massive unfunded guarantee is a joke. The base of that guarantee is just too low. And that should just point out to you how bad our current Social Security system is at providing for retirement. It takes into much and pays out to little because the money isn't invested in anything its a pay-go system of which the only other thing in the US that is pay-go vehicle is a ponzi scheme.

The rates of return you cited for social security are real rates of return adjusted for inflation. What is the rate of return on long term inflated adjusted treasury bonds, TIPS?  It is about 1%. For 10 year TIPS it is at zero percent. If you invested in the stock market in 1966, your portfolio in purchasing power would be about the same in the late 1980's as I recall, a very long period with no real return, after huge loses in purchasing power in the interim.

And this is all from data over about an 85 year period, when the US became the dominant economy, and was a success. A lot of markets totally failed. The past may not be the future. You are extrapolating forward the track record of the guy who won the race as it were, and just because the race was won in the past, is no "guarantee" that that will obtain going forward. Also during that period the markets matured, and expected returns went down. The days of dividend yields of 5% are just so over. At the moment it is a tad under 2%.  So the real returns of equities can be expected to be considerably lower than has been the case over the past 85 years, which over that period was about a 6% annualized real return. Going forward, 4% might be more like it.  

On paper the social security accounts are invested in treasuries now, and it's insolvent. You could statistically calculate the implicit value of the government guarantee that you are going to hand out for free (e.g., running Monte Carlo simulations). It would amount to trillions of dollars.  And there are more than statistically insignificant odds, that the guarantee could turn the US into Greece.

You also have cross subsidy issues. The return is very low for high income workers, and considerably higher for lower paid ones, as you alluded.  So the odds that the guaranty would kick in for some are considerably higher than others.

Finally letting individuals invest if that is on the table is even more insane. The average investor after fees and expenses and trading and chasing performance, under-performs the market return by something like 3% per year. The folks who really make the money are the wire houses, from all of their fees and expenses. Most folks simply don't understand that for the equity portion of your portfolio you just buy the total stock market Vanguard index fund with an expense ratio of about 10 basis points (and maybe a similar fund for a slice for ex-US international stocks), and just forget it.

I hope this helps. Sadly, there is just no painless magic bullet out there. If entitlements are to be maintained, or expanded, they need to be paid for the old fashioned way, not by getting into the inflated expected returns business that has sunk so many state and local government defined benefit plans.

[Wonkish1]

Of course it is insane, and Newt totally mischaracterized what happened in Chile. Talk about an unfunded government guarantee!  Newt will be owned on this issue, if he ever is truly taken seriously, and he is just quite yet.

Your absolutely wrong on this front. Explain it to me in the context of Galvaston then. Then explain to me how Defined Benefit plans that are falling apart and being transferred to the PBGC have been a better alternative to Defined Contribution plans.

Lets assume the private accounts can only be invested conservatively. So lets say 4-5% assumption with little volatility. Social security currently earns between .5% and 2.5% annually(depending on dob, married vs. single, and a little bit based on income) and if your under the age of 40 it will be nearly impossible to get more than 1.5% going forward even among married couples. For most people under the age of 40 the rate of return will be less than 1% when they hit 65(and that doesn't include any reductions due to budget shortfalls).

Now if you are going to tell me that a guarantee to step up any shortfall of accounts to 1% a year that should average at least 4% and have many years of growth is a massive unfunded guarantee is a joke. The base of that guarantee is just too low. And that should just point out to you how bad our current Social Security system is at providing for retirement. It takes into much and pays out to little because the money isn't invested in anything its a pay-go system of which the only other thing in the US that is pay-go vehicle is a ponzi scheme.

The rates of return you cited for social security are real rates of return adjusted for inflation. What is the rate of return on long term inflated adjusted treasury bonds, TIPS?  It is about 1%. For 10 year TIPS it is at zero percent. If you invested in the stock market in 1966, your portfolio in purchasing power would be about the same in the late 1980's as I recall, a very long period with no real return, after huge loses in purchasing power in the interim.

And this is all from data over about an 85 year period, when the US became the dominant economy, and was a success. A lot of markets totally failed. The past may not be the future. You are extrapolating forward the track record of the guy who won the race as it were, and just because the race was won in the past, is no "guarantee" that that will obtain going forward. Also during that period the markets matured, and expected returns went down. The days of dividend yields of 5% are just so over. At the moment it is a tad under 2%.  So the real returns of equities can be expected to be considerably lower than has been the case over the past 85 years, which over that period was about a 6% annualized real return. Going forward, 4% might be more like it.  

On paper the social security accounts are invested in treasuries now, and it's insolvent. You could statistically calculate the implicit value of the government guarantee that you are going to hand out for free (e.g., running Monte Carlo simulations). It would amount to trillions of dollars.  And there are more than statistically insignificant odds, that the guarantee could turn the US into Greece.

You also have cross subsidy issues. The return is very low for high income workers, and considerably higher for lower paid ones, as you alluded.  So the odds that the guaranty would kick in for some are considerably higher than others.

Finally letting individuals invest if that is on the table is even more insane. The average investor after fees and expenses and trading and chasing performance, under-performs the market return by something like 3% per year. The folks who really make the money are the wire houses, from all of their fees and expenses. Most folks simply don't understand that for the equity portion of your portfolio you just buy the total stock market Vanguard index fund with an expense ratio of about 10 basis points (and maybe a similar fund for a slice for ex-US international stocks), and just forget it.

I hope this helps. Sadly, there is just no painless magic bullet out there. If entitlements are to be maintained, or expanded, they need to be paid for the old fashioned way, not by getting into the inflated expected returns business that has sunk so many state and local government defined benefit plans.

They are not adjusted for inflation the age 65 assumption is adjusted for inflation. They are the returns to the age of 65 when essentially the system converts into a COLA adjusted annuity from that point forward. Since its inflation adjusted during distribution phase doesn't mean the numbers I gave you for accumulation phase are inflation adjusted.

By limiting the choices to a well diversified and low volatility group of choices(like the TSP) your whole paragraph here becomes irrelevant. The "guarantee" is a secondary guarantee from the government to step up any short fall(which wont be needed given the very, very low rate of return in current Social Security). I didn't say just equities instead I referred to picking majority fixed income if you want.

That is just factually inaccurate. The implicit guarantee can only be a short fall between their ~1% rate of return and anything below that. The fact that the contributions(or basis) are still there makes the implicit guarantee tiny. And since the 1% is so easy to beat that I can't think of a time where even a dollar of a guarantee is paid out when your talking about an entire lifetime of regular contributions.

Yeah, but even among low income its still very low and its falling like a rock as time goes on.

Again I'm saying that you can limit options if you want. You can set up TSP like plan that has next to 0 fees.

Well you made a good challenge, but it didn't help it fell short. Again this is the industry I work in here. I actually know what average fees are and what are the lowest ones out there are and I know what they are in government provided plans(like the TSP which has Vanguard like fees in the single digit basis point range).

And what you have completely backwards is that Social Security is an unfunded defined benefit plan that is why its going to sink the system just like the municipal and state governments you just mentioned. I'm actually recommended controlled defined contribution which is working quite well actually!

Don't act like I don't know what I'm talking about.

[Wonkish1]

Where is all this open mindedness that people claimed to have when I created a thread on the subject a while back.

I just made an argument in good faith. I covered all of the details you could ask for. I covered both of the liberal concerns of volatility and fees. I explained how it would be an improvement on the current system. It is something that would benefit all of the young folks on here because it would mean that they could count on the program being there for them when they get older and that it would generate higher returns(higher income at retirement) for them even if it was restricted to safer and less volatile assets. I covered the guarantee and how it is essentially a non liability for the federal government(and even it did happen its substantially lower than the current liabilities in the system) I gave examples of what conservatives would accept to make sure that the revenue is there for current retirees. It is safe to say that I am an authority on the subject matter.

Can I at least get an admission that there is at least a good chance that it is a better option than the current mess we're heading in? Or is that to much to ask from a group of people that would prefer to have sole allegiance to proposals produced by their own party?

So again ^^^^^

[Torie]

OK, you are the expert. I get it Wonkish1. I give up.

You might however want to recheck the implicit social security return thing.

By the way, did you ever hear of "Dunn's Law?"  

[All Along The Watchtower]

Ugh, sick of this "Social Security is in imminent danger!" crap.

[Wonkish1]

OK, you are the expert. I get it Wonkish1. I give up.

You might however want to recheck the implicit social security return thing.

By the way, did you ever hear of "Dunn's Law?"  

Dunn's Law has nothing to do with what we're talking about.

Private analysis has the rates of returns lower than ones listed in your link. I think that comes from the fact that a private analysis is going to utilize the cost of buying a COLA adjusted annuity at the date of distribution for example.